Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54.21 and initial downside target at $43.37) are justified from the risk/reward perspective.
On Wednesday, crude oil moved higher after the EIA showed another drop in crude oil inventories. As a result, light crude gained 0.66% and climbed to the resistance zone. But did this increase change anything in the overall picture of the commodity?
Although the U.S. Energy Information Administration reported that gasoline inventories rose by 0.9 million barrels, disappointing expectations for a decline of 0.8 million barrels, the report also showed that crude oil inventories dropped by 2.3 million barrels last week, beating analysts’ forecasts and affecting positively investors’ sentiment. As a result, light crude gained 0.66% and climbed to the resistance zone. But did this increase change anything in the overall picture of the commodity? Let’s examine charts below and find out (charts courtesy of http://stockcharts.com).
Looking at the daily chart, we see that although crude oil bounced off yesterday’s low of $44.55, the green resistance zone created by the Apr and early May highs continues to keep gains in check. Additionally, the commodity still remains in a consolidation between the Jul 12 high of $46.93 and low of $44.51, which means that even if light crude moves higher form here (even to the upper border of the formation), the overall situation will remain unchanged. Therefore, in our opinion, as long as there won’t be a breakout above the Jul 12 high or a breakdown under the lower border of the consolidation another sizable move is questionable and short-lived moves in both directions should not surprise us.
Nevertheless, please note that the Stochastic Oscillator generated a sell signal once again, suggesting that another reversal and lower prices of light crude are just around the corner. Additionally, sell signals generated by the weekly CCI and Stochastic Oscillator continue to support oil bears and further declines in the coming weeks.
Summing up, short positions continue to be justified from the risk/reward perspective as crude oil is still trading under the lower border of the blue consolidation, while sell signals generated by the weekly indicators support further deterioration.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54.21 and initial downside target at $43.37) are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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